Global Conference on Access to Finance

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Global Conference on Access to Finance
Measuring firms access to finance

• Stijn Claessens
• World Bank / Brookings Conference
• May 30th, 2006

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Motivation

• Finance Growth
• Empirical evidence increasingly clear
• But access to finance recurrent problem
• Anecdotal evidence, analyses and surveys
• Measuring access challenging though
• Access for whom, for what?
• Households, SMEs, Large firms. Focus here firms
• Which aspect of access?
• No single definition costs, quantity, quality,
  continuity, types of product, etc. Access vs.
  usage
• First conceptual framework, then measure
• Econometric analyses or Surveys

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Approaches for measuring access/financing
constraints (I)

• Investment cash flow sensitivity
• Empirical design based on
• Tobins Q-model of investment
• Euler equation for investment
• Rigorous approaches, but with strong assumptions
  and much data needs (e.g., stock prices)
• Problems, especially for developing countries
• Classification (constrained or not) often
  arbitrarily
• Data not detailed or reliable enough
• SMEs dominate economic activity, with no/little
  data

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Results from investment cash flow sensitivity
regressions

• Using Euler eqs, Love (2003) documents financing
  constraints

R2 0.35
More developed, more liberalized ? less
constrained firms
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Approaches for measuring access/financing
constraints (II)

• Surveys ask if financially constrained
• Especially for SMEs and developing countries
  surveys only way to get data and access measures
• Results as expected larger, older, more
  export-oriented etc. firms are less financially
  constrained
• Problems, especially for developing countries
• Constrained in cost, quantity or quality?
• Biases bad firms more likely to report to be
  financially constrained, good less likely so.
  Can be solved by using control variables, but
  limited

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Results from surveys (a)

• WBES Percentage of firms (non-state,
  non-foreign) that report financing as a major
  obstacle for their operation and growth

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Results from surveys (b)

• Greater financial development ? fewer
  constrained firms

Effects are most important beyond certain
financial development, as firms then drastically
decrease informal finance
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Issues regarding existing surveys

• World Bank
• Many waves of surveys (WBEs, BEEPS, ICAs)
• But questions on access to finance only a
  minor part of surveys . and limited hard
  financial data
• Other Surveys and Censuses
• Inter-governmental organizations (e.g. EU),
  Governments, Central banks, Private agencies
• More detail, but often not comparable
  (countries/time)
• Consequently need for better and more data
• Increased survey coverage harmonized approaches
• Data from providers, e.g., ask lenders (see next
  from Asli Demirguc-Kunt) and try to match with
  user perspectives
• Aggregate data Financial Sector Development
  Indicators

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Other future avenues

• Better conceptual framework
• Utilize more economic tools in analyses (e.g.,
  separate supply from demand dynamics)
  incorporate institutions
• Identify behavioral cultural biases in surveys
• New research approaches
• Test theories (e.g., pecking order vs. trade-off
  theory)
• Develop new theoretical and empirical approaches
  to test various departures from standard
  investment models
• Firm-specific case studies
• Analyze financial contracting (e.g., loan
  process, timeline and post-contractual behavior)
• Use experiments to identifying access of a firm
• Measure access for a standardized firm across
  countries